Toward a Long-term Economic Damage Reduction from an Urban Disaster: Lessons from the 1995 Kobe Earthquake

I first present a re-estimation result of the long-term economic damage or the so-called indirect economic loss caused by the 1995 Hanshin-Awaji Earthquake (Hereafter, I call it Kobe Earthquake or Kobe EQ). I define the indirect loss as the difference between the without-disaster trend values of Gross Regional Product (GRP) and the actual GRP in the affected area. I show that the affected regional economy continued to be stagnant for a quite long period, resulting in its total values of indirect loss which exceed the officially announced direct loss values, i.e., ?9.9 trillion. Based on this estimation, I pursue some policy implications to reduce long-term economic damage from future possible great urban disasters in Japan or elsewhere. It is my most significant finding is that, not only the destruction of supply side, but also such demand factors as housing investment and private consumption were major influential factors for the long-term stagnation. Nevertheless, the Kobe experience of its economic recovery after a more than two decades struggle shows that the industrial policy of the local government is very important for a long-term and sustainable recovery from a great urban disaster.